tv First Business FOX May 14, 2010 4:30am-5:00am EDT
off the worsening foreclosure crisis. plus, mortgage giants fannie mae and freddie mac asks uncle sam for billions of more dollars. is it time for lawmakers to address their excessive borrowing? and congress' latest crackdown on credit rating agencies... it's all ahead on today's edition of first business. you're watching first business. financial news, analysis and today's investment ideas. good morning everyone, thanks for joining us. it's friday may 14, 2010. and the retail sector is in focus this morning. sales numbers are due out before the opening bell. even as shares of big department stores took a pretty big hit yesterday. shares like j.c. penney and kohl's were down about 5%, angie. and the new numbers are out for foreclosures. foreclosures fell about 2% in april. unfortunately, that is not happening in every neighborhood. so, even though the number's going down, a lot people feel like they're seeing more foreclosures signs going up sadly, beejal. and angie, you're gonna talk more about that story coming up in just a little bit. i am. and also investors piling into the u.s. dollar. its at the highest level in a year as the flight to safety continues. however, gold is backing down a little bit from its record highs.
and let's get a check up on the markets now with lincoln ellis, the linn group. lincoln, that huge rally in stocks on monday. is there a chance that we're actually gonna be able to keep those gains or do we see some of those disappear? it could be interesting to see how we finished the week. we had three quite strong days. and then thursday a little bit of the realization that adding debt to solve the debt problem may not be the best idea in the world. currencies really continuing to sway equity price movements. so keep your eyes on pound sterling and euro for equity price direction. o.k. so are you bullish or bearish at these levels in stocks? we're not in favor of stocks at these levels. we think that the actual price to earnings numbers for 2011 and going forward are far too high in the shape of the recovery. that we're going to see will be much more tepid than what stocks are currently pricing in. ok, oil below $75 a barrel. what's going on there? oil contracts had a wild couple of crazy days with the front month contract. because its going off the board soon. has been trading much more erratic than the back months. but
nevertheless, i thought up to the fact that global aggregate demand. both in the industrial side and the consumption side is just going to be much lower and at a much slower pace of consumption than we've seen in past recoveries. ok, the next shoe to drop that you're on the lookout for. look at pound sterling. we're actually watching that. that has become a proxy for getting short the euro. we've heard some talk in the markets today that the chinese are trying to prop up the euro 125 and a half. and so people sort of switched camps and went after the pound sterling.. if it breaks below 146, that can be an issue. all right, lincoln ellis of the linn group, thank you. a radical movement is crossing the nation. a group called- naca-- neighborhood assistance corporation of america is using unusual tactics to stop bank forclosures and keep people in their homes. this scene in chicago is being
repeated in several cities. credit counselors on one side-- banks on the other.. and, thousands of homeowners struggling to hang onto their homes they're showing up at a naca event as a last resort. diane mclure was forced into early retirement after 36 years as a postal worker-- now she's here for a mortage modification. "my income was reduced significantly i want to lower my interest rate as well as pay my credit cards off and get in a better financial situation." after reaching out to chase bank several times-- mclure has reached the frustration point. "especially when they won't respond. after all these years in my house i want to negotiate, i want to do the right thing. and i want them to do the right thing at least listen." "everybody here has already tried and failed to get it done by calling these lenders on their own."
bruce marks--founder and ceo of naca moves at a manic pace-- leaving time for hugs-- but never slowing down in his mission to help consumers reduce their home loans by making the loan modification process one stop shopping. "it's not getting any better, it's getting worse. all this happy talk is not the reality you've got thousands of people here on the first day of a 5 day event so. and the problem is that lenders are just not restructering mortgages." the problem as he sees is banks are more interested in foreclosures and short sales then lending a hand to homeowners. "the numbers speak for themselves. the administration says they are going to do 3 to 4 million there are less than 200,000. so that's the problem out there have you actually got to get the lenders to get the job done." for lajuana mcroy---even an adjustment of $200 less a month on her mortgage would allow here to save her home. "i have been working with overtime for the past few years and all of sudden they cut out overtime. so it's like i am
losing a lot of my salary." marks predicts by the end of this event-- 80% of the people here will find some sort of solution.... my savings account i used most of that right now i am right there if they help me that would be great. its a really good thing for us. "right now the line is right there" "the government is pleading, begging and bribing the banks to do the right thing" but the government has to start requiring them to do the right thing, the goverment required them to take the tarp money to save wall street, the government can require them these banks to restructure the mortgages for homeowners. chicago was the 17th stop for naca. atlantic city, atlanta and sacremento are next... a representative from chase bank contends the bank does call people back and right now is holding a series of it's own events to get people into the process of modifying their loans. she would not call marks tactics radical-- instead she says -- the bank, similar to marks is also interested in keeping people in their homes. thanks angie. and credit rating agencies have so far been able to avoid any major reform overhauls in the way they do business. you'll remember they gave triple a ratings to mortgage investments that turned out to be junk. well, now lawmakers are trying to crack down on those practices. brian battle of performance trust capital partners is here with the latest.
welcome brian. so the senate just passed an amendment to deal with these credit rating agencies as they're working on the overall financial reform bills. so how would this amendment change the way credit rating agencies do business? right, so the franklin amendment just went through. named for mr. al franklin of minneapolis . and this is just an amendment to the proposed the bill. we have a long way to go till it gets finished. but the sec established a commission and the commission will take applications for ratings and we'll tell the petitioner, this time go to moody's. this time go to s&p. so they will deal out who you get your rating from. and that is supposed to take out the self dealing sort of paying for a rating, shopping for a rating problem. right, so the banks under this amendment would not be able to pick and choose who rates what security? they would be assigned a rating agency. that's correct. so this will eliminate the conflict of interest, you think? it would eliminate the conflict of interest, but it will cost. it will cost more to get a deal
rated, because it would take longer to get it done. it was slow down the creation of credit. if you have a stack of securities you want to get rated, you used to be able to do that in 24 hours, 12 hours, 36 hours, maybe. now you are gonna stand in line with a stack of papers for the sec and way to have your deal look at. so, i believe this will slow down the credit creation and it will make it more expensive. right at the point that we're in the middle of a recession, i really don't think this is the best way to solve the problem. ok, so we're looking at higher cost for who exactly? is it the end users, the investors that buy these securities? it will be higher cost for you and i. because we are not just talking about mortgages in the securitized assets, there's also credit card loans. automobile loans, and any sort of assets that can be securitized ends up in these products. so, that cost gets shifted to somebody. goldman sachs isn't paying for it. when you go to apply for your mortgage or take out a credit card or by a car. that interest rate will be a little bit higher to pay for that uncertainty, and the process when the banks have to go to the sec to get a rating. ok, so suppose this does go through. and there's a long way to go. stocks on some of these credit rating agencies like moody's are
still at 10 year lows, they haven't recovered. how do you think this is going to impact their bottom lines? well, they have a long way to go in this process too. they're under full assault. dan como just subpoena a bunch of records from the rating agencies and the banks. talking about the conflict of interest when they bring things over and sell them to investors or any sort of securitized asset. so, they have a long way to go in recovery. because they're under assault from the sec, congress and the attorney general of the state of new york. so there's a lot a political piling on. it is not safe to go back in the water if you're considering any sort of investment in a rating agency stock. its going to be a really difficult time. ok, this is definitely a hot button issue. this is just one part of the over all financial reform bill that still has yet to be voted on. so we'll see if it goes through or not. thank you very much brian battle of performance trust capital partners. bp continues working on a second fix to contain the oil spill... a smaller dome will eventually be placed over the oil leaks... bp is hoping the dome could be in place by the end of next week... this video shows one of two leaks... from the deep water
horizon drilling rig that sunk to the ocean floor in the gulf of mexico. bp says so far, the total cost of the clean up efforts comes to 450 million dollars.... shares of bp are down 18% since the drilling rig it was leasing from transocean - exploded on april 20th. teenagers' take on investing in the stock market.... but first...the country's two largest mortgage companies are asking uncle sam for more cash. is it time to cut off fannie mae and freddie mac? paul eggers has that story coming up next.
two of the biggest recipients of bailout cash have headed back to uncle sam's a-t-m for another withdrawal. to cover ongoing losses in the mortgage market, fannie mae asked this week for 8 and a half billion dollars more from the government one week after freddie mac hit up the feds for 10.6 billion. the two firms have already received roughly 145-billion dollars in tax-payer funds. they also have a government guarantee to cover all losses through 20-12. former republican senator phil gramm criticized the financial reform legislation currently in the senate for failing to address the issue. "if harvey gallop, who now heads a-i-g is right and they're able to payback their loans, only fannie and freddie will lose money from the bailout. and yet, not one peep about fannie
and freddie in this whole bill." certainly that's one very strong opinion on fannie, freddie and financial reform. and now for another, we welcome in rebel cole from depaul university. always a pleasure having you on the show. now rebel this week the republican amendment to include fannie and freddie in financial reform that would actually bind them down with the course of the next 24 months was voted down in the senate. but a democratic proposal that would push it off a little bit and mandate a study by treasuries was passed. is this a good idea to kick the can down the road with fannie and freddie and finance reform? fannie and freddie i like the 800 pound gorilla in the room, except they're really the five trillion dollar elephant in the room. it's kind of hard to imagine for financial reform, to that which are now the two largest financial institutions in our country. it's kind of doing health care reform without medicare and medicaid. now talk about that, that fannie and freddie are the two biggest financial firms in the country
right now. due to some accounting changes that require consolidation of off-balance sheet items. those two companies just brought all of their loan guarantee portfolios to trust back on balance sheet. so they have gone from, i think fanny was 900 billion. they're now 3.3 trillion. and freddie has gone from about 600 billion to 2.4 trillion. so now we see how big these behemoths really are. well and that also speaks to the important role they play in the mortgage market. especially today. looking at the numbers, they back stocked roughly 97% of mortgages that originate in the first three months of this year. and this, at a time when mortgage rates are at the lowest point they've been all year, below 5%. so given their importance in the mortgage market, can you make the argument that it's good to have them here while housing sees a bit of recovery. how much are we going to prop up this housing market? we've got a $500 billion tax deduction for the interest deduction on mortgages. we have a 1.25 trillion that the fed spent buying up mortgage-
backed security to prop up the housing market. we've got the first-time home buyers a tax credit. we've got the fed with zero interest rates and keeping mortgage rates down. and where does it stop? how much do we have to spend? my guess is to what is the mission of freddie mac? are they just going to be an unlimited piggy bank? for the government to use for its policies and without having to pay for them? remember on christmas eve of their treasury lifted the credit line from fannie and freddie, $200 billion apiece to an unlimited amount. why do they need that credit? what is gonna be the next shoe to draw? well fannie and freddie have actually done a better job of securitized loans. their delinquency rate on securitization both below 6%. while wall street's record is above 12%. so doesn't this speaks to fannie and freddie actually doing a good job in the housing market? well, fannie has lost about $135 billion during this crisis. which is
more than double what they earned in their entire year 35 year history. i don't think we have to give him much credit for doing things right. we can certainly argue about how much worse wall street did in securitizing these. at least wall street stuck that off on somebody else. this is all sitting on fannie and freddie's books. and now taxpayers. well then, how would you fix the problem? how would you fix fannie and freddie and its relationship with the government? clearly, you can go on with this sort thing. this is a classic case of privatizing the gains in socializing the losses. all those 70 billion they earned all went into the investors' pockets. the hundred 40 billion in losses is all going on us taxpayers. so, we either need to admit that this is a government entity. which, most investors consider it to be and most sovereigns considered it to be. or we need to privatize it and spend it all. let the mortgage market stand on its on. again, how much are we going to do to subsidize housing in this country? well, certainly going to be interesting. this conversation is going to continue. fannie, freddie and
and nikko ross, co-authors of the book. great to have you on the show this morning. well as you know, the markets have been anything but steady lately. so noble, what do you think people should be doing with their money right now? buying, selling? holding? well, one of our main topics in our book is to keep yourself in the market. so what we want to do is to tell teens and everybody to stay in the market, wait for your invest up up. sounds like good advice. and nikko, how much would you say that most teens know about investing in the stock market? i would say that most teens know little to none about investing in the market. which is the main reason why we came up with our book. steady way, and also our company, stack your paper. stack your paper, we will talk about that in a minute. but what has been the response to the book so far, would you say? well, teens are really interested in the book. and we have a lot of topics that really grabbed teens' attention. so it's been really easy to market it to schools and other youth organizations. so what would you say some of the best advice
right now is in the book, noble? the best advice we found, that i found is to know what you are investing in. the better you know where you are investing in, the more you will know what is going to sell in what season. what is going to go up, and you will make more money that way. all right, so nikko here you are seniors in high school at whitney young. what's next? you've already written a book. well, and definitely the next step is going to college. we are both going into finance, stockbroking, financial advising. and overall, just grow our brand across the country. so you think you will work together then? yes, it's possible. yes, that would be a good move. all right, i know that you guys are seniors and you've probably seen the show are you smarter than a fifth grader. so i thought this morning we would play argue smarter than a 12th grader. how do you like that? so, the first question is what is in e t f? an exchange traded fund. very good. and who has more money? oprah winfrey or bill gates of microsoft? bill gates of
microsoft. hands down. he's got about 53 billion. oprah's got 2.7 billion. and i also want to know when is the best time to buy a stock? it depends on what you're investing in? good answer. buy it when it goes down? i was hoping you would say, buy low. we love that advice. very good, so you're going to continue on being entrepreneurs. and do you think there's more books to come you're way? definitely. there are more books to come our way. what would you like to write about? our next venture is going to be entrepreneurship. how to start your own business. and it's geared the same way towards teens and young adults. i'll tell you what, you write the book and you come on back on the show. we'd love to have you. thank you so much for joining us. it has been great talking to you guys. talking to noble elliot and nikko ross, high school seniors. and still to come, its two for one in our chart talk. we'll take a look at apple and goldman sachs with andrew keene. right after this quick break.
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financial stocks are very much and focus for traders right now. let's bring in independent trader andrew keene to talk about goldman sachs. good morning to you andrew. good morning to you too. so goldman sachs lost a couple of dollars yesterday, as a looks like there's going to be more investigations of some of the big banks. so what do you think is likely to happen here with this stock? well yeah, goldman actually did lose a couple of
dollars. literally, they probably didn't because they came out and said that they did not having losing day trading in the whole quarter. they made over a hundred million dollars like 15 times. so, they're getting bad press right now. the most heavily hated stock in the stock market right now. it was up huge two days ago. it was up like five and a half dollars, sold off a little bit yesterday. it's right around this 145 level. i think it's going to go lower before it goes higher. however i am flat on goldman sachs. so what's the flow on the stock, do you think? well, the flow is kind of the same way that apple trades. and everything else has kind of been trading the same. but stocks stocks go down a lot. but the volatility absolutely explodes, and especially to the upside. the upside calls get bids. and the volatility is a lot higher. when they start coming up, like apple came up $20. goldman sachs came up five yesterday, the upside called. the 150's in goldman, the 155 in apple would be the 260's and 270's. get absolutely cremated, the volatility goes down a lot. so it's just kind where you think the stock is going to go from here. ok, thank you very much. andrew keene, independent trader. for helping us out with a little apple and with goldman